SEC in Talks to Convert Grayscale GBTC to a Bitcoin ETF

The United States Securities and Exchange Commission (SEC) has initiated discussions with Grayscale Investments. Reportedly, they are discussing whether to convert Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF (exchange-traded fund).

This move, which follows Grayscale’s recent court victory over the SEC, could significantly impact the crypto market. Indeed, it could ease the way for everyday investors to engage with Bitcoin.

SEC and Grayscale In Talks Over Bitcoin ETF

Grayscale’s ongoing dialogue with the SEC’s Division of Trading and Markets and the Division of Corporation Finance comes after a US federal court ruling found the SEC’s initial rejection of Grayscale’s ETF application to be “arbitrary and capricious.” The court’s decision has reignited the possibility of a spot Bitcoin ETF. Consequently, it places Grayscale’s application back under the SEC’s scrutiny.

Craig Salm, Grayscale’s Chief Legal Officer, emphasized the company’s renewed focus on engaging with the Division of Trading and Markets. He acknowledged ongoing challenges but expressed optimism. Salm also noted the progress of other financial giants like BlackRock and Fidelity in their Bitcoin ETF applications.

“Right now we’re just laser-focused on constructively reengaging with Trading and Markets… There are still things that have to be worked through… Overall, it’s been good engagement, and it’s a matter of when, not a matter of if anymore,” Salm stated.

The SEC, which has not yet publicly commented on the new talks, faces heightened expectations and scrutiny.

SEC Chair Gary Gensler refrained from commenting on Grayscale’s application recently. Still, he highlighted the work of the agency’s corporation-finance arm in dealing with evolving technology and business models. This division will play a central role in evaluating Grayscale’s application.

“I’m not going to prejudge the staff’s work on those multiple ETFs filings, but it’s also about those companies. When a company, or an asset manager, is seeking to take something public, these exchange-traded products need to be registered with the SEC and they go through a filing somewhat similar to going public like an IPO,” Gensler said. 

According to Bloomberg’s ETF analyst James Seyffart and Bloomberg Intelligence Senior ETF analyst Eric Balchunas, the approval window for all pending Spot Bitcoin ETFs is set to open. They suggest that even if approvals are not forthcoming this month, there is a 90% probability of Bitcoin ETF approval by January 10, 2024.

“Delay orders were issued by the SEC for BlackRock, Bitwise, VanEck, WisdomTree, Invesco, Fidelity & Valkyrie at the same time. If the agency wants to allow all 12 filers to launch – as we believe – this is the first available window since Grayscale’s court victory was affirmed,” Seyffart said.

Meanwhile, JPMorgan noted that the SEC could face lawsuits if it fails to approve the applications. Even some policy experts criticize the commission for overstepping its authority.

Among the 12 applications for Spot Bitcoin ETFs are submissions from major players like ARK 21Shares, BlackRock, Bitwise, VanEck, Wisdomtree, Invesco & Galaxy, Fidelity, Valkyrie, Global X, Hashdex, and Franklin Templeton. BlackRock, in particular, seems to be gaining significant investor interest.

With $8.5 trillion in assets under management, analysts speculate that a BlackRock Bitcoin ETF approval could inject $155 billion into Bitcoin. The significant capital inflow could potentially push Bitcoin’s price to $330,000.

“We could expect $155 billion will flow into the Bitcoin market once these ETFs are approved. The total Assets Under Management (AUM) of these companies are around $15.6 trillion. If they were to put 1% of their AUM into these Bitcoin ETFs, the total US dollar amount that would enter the Bitcoin market would be around $155 billion. To put it in context, these amounts represent almost a third of the current market capitalization of Bitcoin,” blockchain analytics firm CryptoQuant reported.